Does Having a Golden Visa Lower Your Tax Bill?
November 14, 2024
What’s the difference between a temporary residence, a permanent residence and citizenship? And what do these choices mean for your tax affairs?
At Nomad Capitalist, we hear these questions all the time, and we tailor our bespoke plans to help people go where they’re treated best, not where they can simply avoid taxes. In fact, we never recommend hiding from the tax authorities.
A golden visa program has many significant advantages for expats, but it’s not going to keep the tax authorities at bay. In this article, we explain why and weigh up the pros and cons.
As always, this article is not professional tax advice. If you want the benefits of our bespoke offshore tax planning, second citizenship and asset protection strategies, feel free to reach out here.
What is a Golden Visa?
In a nutshell, golden visas offer the opportunity for high-net-worth people to buy residency in a country.
A golden visa, or residence by investment scheme, allows you to obtain a residency permit by buying a house or making a sizable investment. In some cases, you don’t even have to live there.
It’s a very attractive immigration program for people who have the money to invest because golden visas generally don’t require you to change your lifestyle.
Some popular examples include investing in real estate in Greece or in a venture capital fund in Portugal.
The Benefits of a Golden Visa
One of the most attractive benefits of gaining a golden visa is that as an EU resident, you have visa-free access to over 26 European countries.
Aside from travel and lifestyle benefits, these programs can also lead to new investment opportunities and eventually to citizenship.
Furthermore, EU golden visas offer you a secure place to live and work, along with potential tax strategies and offshore opportunities, should circumstances change.
The trouble is, however, that the tax authorities can still come after you.
What a Golden Visa Won’t Do
It’s important to be aware that most golden visa programs don’t waive the taxation requirements for investor residents.
However, if you obtain residence without physically moving to a country, a golden visa country will not tax you. They only do so if you live in the country.
Some schemes, like Portugal’s former non-habitual tax residence, allow you to live in the country and only pay tax on money that you earn there. Income from abroad is exempt.
But, if you spend enough time there to qualify as a tax resident, usually 183 days, they will definitely tax you.
And even in jurisdictions where it’s possible to avoid taxes, your personal and business affairs have to be structured correctly. For example, you can’t simply place your money in another no-tax country, like the Cayman Islands, then go to Portugal and claim tax exemption.
Alternatives to a European Golden Visa
Apart from a golden visa, there are other ways to achieve residence in Europe. This includes a property investment visa, real estate investment, physical presence, bank deposits, having certain skills or holding savings, among others.
In fact, there are numerous ways to get a residence permit. You can try opening a bank account somewhere, opening a company or paying a flat amount of tax to prove that you have the wealth. You could also confirm that you have the income to buy bits and pieces of real estate.
Some of these options are very expensive. Although, this is to be expected when you’re planning on diversifying your second passport portfolio.
A golden visa is a more expensive investor visa that most European countries offer. In some cases, it’s an easier option when you don’t have to live in the country for six months to keep the resident permit active.
In comparison to schemes like the Portuguese Golden Visa, a residence permit is a faster way to get citizenship without living there all the time.
When we talk about a golden visa scheme, it’s mostly between European countries.
So, you can get these in Portugal, Spain, Latvia and Greece and they sometimes apply the same terms with their investor programs. But does having a golden visa save you on taxes?
Not necessarily.
Why You Shouldn’t Leave Without Paying Taxes
A golden visa program has advantages, but it won’t let you leave your own country and not pay taxes.
There’s been a lot of action to increase the enforcement of the IRS Tax Authorities – and they’re also going after people with cryptocurrencies.
Sure, it might take them years to find you if you simply stop paying taxes. However, they will find you in the end. You don’t want the hassle of constantly having to look over your shoulder, right?
You have to bear in mind that just getting a Portuguese Golden Visa by meeting the immigration criteria will keep your resident permit active. However, it’s not going to keep any country’s tax authorities at bay.
So what you want is to take your assets and find a way to legally move outside of your current tax system to a more tax-friendly place.
If you’re a business owner, and you have the foreign earned income exclusion, then there are numerous ways that you can legally reduce your taxes as an American. You can do this if you have an active income and can move to Puerto Rico.
This is a good solution for business owners and those with passive income capital gains. But, truthfully, there aren’t as many options for Americans.
What most people don’t understand is that you can’t spend seven days a year in Portugal, then go back and spend 358 days in Atlanta or Adelaide and say, ‘Oh, I’m a golden visa holder, so I don’t have to pay’.
If you want to move to the country of your golden visa, only then can you legally reduce your taxes.
How Do You Get Tax Benefits?
While benefiting from tax benefits is possible for some, the reality of achieving significant tax benefits abroad is often more complicated than it seems.
First, you can’t just show up and expect a tax break.
Most countries require you to become a tax resident, which means establishing strong ties to that country. Typically, this entails residing there for a significant amount of time each year and potentially satisfying other requirements, such as owning a permanent residence or holding a specific job.
Even when you qualify as a tax resident, don’t assume you’ll pay zero taxes. Many countries offer enticing programs with tax breaks for foreigners, but these often come with limitations and exceptions.
For US citizens, the puzzle is even more complex. Unlike most nationalities, Americans have a continuous tax obligation to the US, regardless of where they live. Gaining a better tax residence therefore means you’ll need to follow the tax laws of both the US and your new country, which can be tricky.
Golden Visa Tax Benefits: FAQs
You can access golden visa tax benefits if you physically reside in the country for long enough to meet tax residency requirements. The specifics of each tax system differs by country, and benefiting from these systems varies by individual circumstances.
At the moment, Portugal only offers the Non-Habitual Residency (NHR) program to people who became tax residents in 2023 or earlier years. Those looking for the new list of benefits will have to wait until the new program, called the ITS program, is officially put in place in 2025. While the specifics for the new programs are not set in stone just yet, there are still certain tax benefits that might help you lower your tax bill.
Greece offers a favourable tax regime for new residents, including a flat tax of €100,000 on global income under specific circumstances. But, you must live in Greece to benefit from this.
Becoming a tax resident in Spain (living there for 183 days or more) could open access to tax benefits, like tax treaties or exemptions on foreign income. However, Spain is generally not the best country for tax benefits.
Solving Your Tax Problem
If you want to avoid becoming a taxpayer in a new country and only want the immigration benefits, it is possible. However, you must ensure that you do not become a tax resident.
Also keep in mind, that Europe has various tax provisions beyond physical presence thresholds. Without proper planning, other factors can trigger tax residency, requiring you to potentially pay even more.
So if you want to avoid that, then make sure that you do your due diligence before you sign up for any golden visas.
Golden visas get you in the door, but it’s not a catch-all. Yes, it’s part of the solution, but you still have to separate taxes and immigration.
Once you’ve spent a great deal of time in these countries, you can develop those connections to help you set up your tax home. Then you can potentially break free from where you’re currently being taxed.
With so many countries competing for your business, there’s no need to stay in a country that’s doing its best to snatch your profits. If you’re a US citizen and this article has struck a chord with you, you may want to explore your options. If so, reach out and let us help you like we’ve helped thousands already.
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